Green Scheme

On the afternoon of Friday, Dec. 12, consultant Paul Fenn stood in a hearing chamber before San Francisco's Local Agency Formation Commission (LAFCo) — an obscure but influential panel that oversees the city's energy policy — trying to explain why his proposals for promoting renewable energy are worth dying for. The five-member commission listened as Fenn argued that the benefits of installing a tidal-power turbine in a dangerous area of the San Francisco Bay just beyond the Golden Gate Bridge would merit the deaths of a few construction workers along the way.

“I'm sorry,” Commissioner Hope Schmeltzer said. “You're still saying that you're confident that it's worth pursuing, but you've also established it's going to cost several lives?”

“Yes,” Fenn said.

An uncomfortable silence followed.

“That is a pretty bold statement,” said Supervisor Ross Mirkarimi, the commission's chairman.

“I'm not a politician,” Fenn replied. An acid note crept into his voice. “Consider how many people your current energy supply is killing right now. It's easy to be sentimental about lives.”

Among major American metropolises, San Francisco is perhaps unique in combining a fierce political drive for novel energy policies with a lack of success in implementing them. Over the years, this fog-hung peninsula, which for the past century has rested in the grip of a Pacific Gas & Electric Co. monopoly, has been home to bold proposals for solar power and wind energy facilities as well as a steady stream of ballot initiatives designed to authorize a government takeover of PG&E's electricity grid. The municipalization schemes have all been rejected by voters, most recently in November, when Proposition H, the latest iteration of “public power” in San Francisco, went down to a crushing 22-point defeat.

By contrast, Fenn's plan is no pipe dream — at least not in the eyes of most city officials. Called CleanPowerSF, the program calls for the city to become the electricity provider for virtually every power consumer in San Francisco as early as next year, generating more than half of all energy from renewable sources such as wind farms, solar panels, and geothermal plants.

In our overheated, oil-dependent world, most can agree that these are laudable goals. Reaching them, it turns out, is a painful proposition.

Start with the hit to ratepayers' pocketbooks. According to estimates from the city's own economists, CleanPowerSF's fast-track greening of the local power supply would raise average residential electricity bills by 24 percent, and could have a crippling impact on some of the city's poorest residents. The program also calls for San Francisco to plough $1.2 billion of borrowed money into its own renewable-energy plants — infrastructure such as rooftop solar panels and wind farms, much of it within the city — an investment that could be backed by the promise of future tax hikes if the facilities can't support themselves.

Risks abound in CleanPowerSF, and not just for the hapless workers who may one day venture beneath the Golden Gate Bridge in furtherance of Fenn's vision. In fact, one of the more remarkable aspects of this largely unpublicized public-power venture is that almost every resident and business in San Francisco has already been signed up to participate, whether they want to or not. If you're reading this, there's a good chance the city is counting you among its paying customers.

Fenn's consultancy, Local Power Inc., keeps an office on Grove Street, about a block from City Hall. With its bare walls, wide windows, and spare furniture, the space seems geared to highly conceptual work. One afternoon last fall, Fenn — a balding and handsomely weathered 43-year-old — sat at a table in the second-floor suite, explaining that he first formulated his ideas about the energy markets during his graduate studies in intellectual history at the University of Chicago. “What we're after here is a demonstration of scale and speed,” he said. “How do you change a city's power supply, quickly, without causing harm?”

Rather than beating the drum for the old leftist cause of municipalization, Fenn conceived of a way to put city governments in control of their energy supply while skirting the politically volatile suggestion of taking over private utility equipment. Instead, a city could purchase energy in bulk for all its customers — thus “aggregating” them — and sell it to those customers across privately owned utility lines. In San Francisco's case, the city would hire a contractor to procure power while simultaneously building its own green-energy facilities. CleanPowerSF would owe PG&E a surcharge to cover the utility's infrastructure investments.

Fenn called this arrangement Community Choice Aggregation, or CCA. In addition to stabilizing or even lowering the cost of electricity, CCA would empower green-minded municipalities to ditch fossil fuels and pursue renewable sources of energy.

Or so the thinking went.

CCA found fertile ground in California following the 2000 collapse of the state's energy market. The unprecedented deregulation of the buying and selling of electricity in 1996 had proved a nightmarish exercise in the excesses of free-market capitalism, as wholesale energy suppliers — among them the disgraced corporate giant Enron — undertook complex trading schemes to sell their power at artificially high prices. Federal regulators eventually instituted price caps for electricity, causing the chaos to subside, but there was plenty of pain along the way. Blackouts swept the Bay Area during a heat wave in the summer of 2000, and in the spring of 2001, PG&E filed for bankruptcy.

The deregulation experiment was not one consumers — or policymakers — would soon forget. The state's energy woes had a particularly galvanizing effect in San Francisco, which for decades had been home to vocal and politically potent advocates of government control of the city's power supply. The gospel of public power has long been common fare in the pages of the San Francisco Bay Guardian, an organ of the left, and to this day is espoused by almost every ambitious politician of the self-described “progressive” ilk.

For these true believers, the state's failed experiment in deregulation was the final vindication of their arguments that city bureaucrats, rather than private corporations, should control the flow of energy. In 2002, the state passed Assembly Bill 117, called by its proponents the Community Choice Law. Sponsored by then-Assemblywoman Carole Migden, it was also a direct product of the Bay Area's activist community. Fenn was its author.

[page]

When the Board of Supervisors formally adopted CCA as the city's energy policy in 2007, these activists got their wish: San Francisco would, at last, become the laboratory for a radical new energy scheme. Fenn calls it “the largest green-power project in the world.”

Customers themselves might be reluctant to participate in this experiment — but under state law, their opinion no longer matters as much. That's because CleanPowerSF, the better to achieve its lofty ends, strikes a Faustian bargain in the territory of consumer rights. The most significant aspect of the 2002 Community Choice law was to authorize local governments to enroll their residents in CCA without asking them beforehand. Call it Community Choice — minus the choice.

A generally accepted principle of contemporary economic theory holds, in essence, that people are lazy and fearful of change. As part of the research that led to his 2002 Nobel Prize in economics, psychologist Daniel Kahneman documented consumers' tendency, through sheer inertia, to remain with their default providers of goods and services. (Kahneman's larger subject was the irrationality of people's financial choices.) “The literature is fairly robust on this: A large number of the people don't switch,” said David Gamage, an expert in consumer issues and assistant law professor at UC Berkeley's Boalt Hall School of Law.

This universal human tendency has a lot to do with the design of CCA. Prior to the 2002 law, California customers were free to drop their accounts with big utilities like PG&E and switch to alternative power providers. But very few did so.

CCA turns the equation on its head. The burden is on individual power users to put a stop to the city's overhaul of their service; silence signals consent. Customers are not, strictly speaking, forced to buy into the program. They are allowed to opt out and remain with their previous power provider — which, in the case of San Francisco, is PG&E — and state law requires that adequate notice be provided of their right to do so. Nevertheless, Gamage says, such scenarios have a predictable result: “Whatever the default option is becomes the default.”

Supervisor Sean Elsbernd, who opposes CleanPowerSF, is skeptical of the mechanism through which San Franciscans will be allowed to “choose” their energy providers. “Power users all over the city are going to be sent a little card that says, 'You're in CCA unless you fill this out and send it back,'” he said. “Well, if you're anything like me, that card goes straight to the recycling bin. I think the supporters of CCA realize that they need to dupe people. They need people to throw those cards away so they have a customer base.”

The threat posed by Community Choice to unwitting residents was the central point of a San Francisco city controller's report, little noticed at the time of its May 2007 publication, that assessed CleanPowerSF's potential economic impacts. The 16-page report sketched a bleak outlook. Analysts found that residential power rates would be 24 percent higher under CCA than under PG&E, and concluded that meeting the plan's dual goals of 51 percent renewable-energy use and “meeting or beating” PG&E rates was “unlikely.”

Ted Egan, chief economist in the controller's office, noted dryly that CleanPowerSF is required to meet or beat PG&E rates for only the first 60 days of service. After that, it must “intend” to offer competitive rates. “It's certainly not much of a value to the customer to only have 60 days of guaranteed rates,” he told SF Weekly. In a rather suspicious coincidence, the meet-or-beat mandate expires at the same time customers' free opt-out period does; if they want to leave after that, they must pay a fine of an as-yet-undetermined amount. “It's going to be an issue,” he said. “People could feel like, 'Well, my rates were the same as PG&E's during the opt-out period, and after the opt-out period they went through the roof.'”

The controller's office also warned that the financial burdens of implementing the plan's ambitious renewable energy goals could fall most heavily on the city's poorest residents. The report forecasts a situation in which more-savvy energy users, such as affluent homeowners and large businesses, opt out of CleanPowerSF because of its higher rates, leaving the cost of the program to be borne disproportionately by the poor — who, according to the controller's office, as a group pay less attention to the details of their energy bills.

This “double impact,” as the report called it — poorer ratepayers devoting larger portions of their income toward the ideological prize of a green city — could be especially severe if CleanPowerSF fails to enroll large industrial and commercial customers (for example, proprietors of the big office buildings clustered in the Financial District). This is not a far-fetched scenario. A summer 2007 survey of 111 S.F. business executives by the city's Chamber of Commerce found that 74 percent would prefer PG&E to the City and County of San Francisco as an energy provider. If the fate of Proposition H is any indication, that sentiment is mirrored, albeit on a less dramatic scale, among the city's voters.

Barbara Hale, the senior San Francisco Public Utilities Commission staffer who for years has been the commission's point person on CleanPowerSF, said the answer to such concerns lies in a diligent public-information campaign, including not only direct mail to customers but also advertisements such as billboards and bus panels. “As a public entity, we certainly don't want any 'gotchas,'” she said.

The SFPUC has already produced a brochure for CleanPowerSF that will be circulated among neighborhood associations in the coming months. At the request of Supervisor Chris Daly, who until a few weeks ago sat on LAFCo, the pamphlet is an eerily vibrant green. “Make the green more green,” he insisted at the September meeting where the first draft of the brochure was reviewed.

[page]

In light of its potential effects on all San Francisco residents, you might think that Community Choice Aggregation would be well suited to an up-or-down vote through popular democracy. But Mirkarimi, who from his perch as LAFCo chairman is one of the foremost advocates of public power in city government, demurred when asked whether CCA should be put to a citywide referendum along the lines of previous energy initiatives. “My concern about that is that it becomes another campaign of public power, where PG&E spends $10 million and we spend $50,000,” he said. “They run this campaign of disinformation and it just shuts down the whole argument for what we would be trying to offer.”

PG&E has lobbied actively against CCA in Marin County, which is developing its own plan, but has so far been relatively quiet in San Francisco. As CleanPowerSF progresses, however, it is almost unthinkable that PG&E won't launch its own opposing marketing campaign to persuade people to opt out. “We believe that the draft [San Francisco] CCA plan carries great risk for our customers,” PG&E spokeswoman Emily Christensen said. The company sees itself as having a responsibility to share this view with residents, she said, but declined to comment on when or how it might do so.

In other words, when it comes to CleanPowerSF, PG&E will be ready to fight, and fight hard. Anyone who doubts as much need only look to the Central Valley, where the utility has battled the state's most promising CCA program to a standstill.

The San Joaquin Valley Power Authority (SJVPA) is headquartered in a ranch-style building on a lonely commercial avenue in southeastern Fresno. Passersby probably don't guess that this modest building is home to the agency that has pioneered one of California's most revolutionary approaches to energy policy. Residents of the cookie-cutter housing tracts and agricultural flatlands that spread in all directions are probably none the wiser: Despite receiving final regulatory approval from the California Public Utilities Commission in the spring of 2007, the power authority's CCA program has yet to serve a single customer.

On a winter day in the Central Valley — the sky was overcast, and the morning's tule fog had left a lingering chill — Cristel Tufenkjian, an SJVPA spokeswoman, took a reporter on a tour of some of the authority's 12 cities. Driving through countryside quilted with orange groves and raisin vineyards, she explained that the SJVPA had lost crucial time moving its plan ahead because of wrangling with PG&E.

Typical of the utility's marketing tactics was a full-page advertisement in the Fresno Bee. “Whatever Happened to Open Government?” the ad screamed, arguing that the switch to CCA would entail “billions of dollars” in debt and power costs for the cities. “We ask you to involve local residents in the decision-making process,” it continued. “After all, they are the ones who will have to live with the outcome of your decisions.”

PG&E's efforts did not sink the SJVPA, though the utility did land a heavy blow: The city of Fresno, whose 470,000 residents would have accounted for about half of the authority's energy use, dropped out. SJVPA officials responded by lodging a complaint against PG&E with the state Public Utilities Commission, alleging misleading marketing tactics. The result was inconclusive: Both sides agreed to ground rules for their CCA-related marketing, such as clear disclaimers of sources of information presented to the public. But other problems, having nothing to do with PG&E, were in the offing.

Next to CleanPowerSF, the SJVPA is striking by virtue of its modesty. The Central Valley program involves no renewable-energy requirements beyond those laid out in state law; its goal is one of economics, not ideology. But the power authority's founding objective — providing energy that would be about 2.5 percent cheaper than that offered through private utilities — has proven more difficult to guarantee than its supporters had expected.

“What we have been challenged by the last six months is the incredibly volatile energy markets, now further compounded by the credit market uncertainties,” SJVPA manager Dave Orth said. “We cannot buy the energy through 2015 that we need to support the program. There are opportunities for shorter deals — two, three years — but our program goal is to provide more stability than that.” As a result, the initiative has been put on hold.

Several other regions in California have devoted extensive time and energy to developing CCA programs since the 2002 passage of AB 117, but none have succeeded in making their plans a reality. Marin County has in recent months advanced its own plan, Marin Clean Energy, but its fate, like that of its S.F. counterpart, is uncertain.

Meanwhile, across the bay, energy officials in Oakland, Berkeley, and Emeryville suggested to their city councils in October that plans for an East Bay CCA be dropped. Reports in each of the three cities concluded that the risk of higher rates to customers, as well as the general pitfalls of plunging into an untested prescription for buying and selling power on such a large scale, were simply too great.

“In my mind, there's a basic flaw in that business model,” Emeryville city manager Patrick O'Keefe said. “You can't guarantee that your revenues are going to equal what your [debt] obligations are. The only other way to do it is to raise rates, and the more you raise rates above PG&E, the more customers are going to opt out.”

Successful CCAs can be found — two of them. Both are outside California. In Massachusetts, the Cape Light Compact has since 2004 served about 200,000 customers, and in 2007 offered rates roughly 4 percent below those of the incumbent private utility. Similarly, the Northeast Ohio Public Energy Council (NOPEC), established in 2000, is a CCA serving 118 towns and cities. In its 2005 year-end report, NOPEC calculated that it had saved its customers $46 million over five years when compared to the default local power utility, a savings of about $33 per customer per year.

[page]

However, both these programs were driven by goals different from, and in some ways antithetical to, those that launched CleanPowerSF. NOPEC and the Cape Light Compact set out to save consumers money, rather than promote aggressive renewable-energy standards. By contrast, the brand of CCA that has evolved in eco-friendly regions of California places a premium on greener power. “CCA is the closest thing to a silver bullet we have for jump-starting renewables at the local level,” said Tam Hunt, energy program director for the Community Environmental Council in Santa Barbara.

But to promise cost savings in the same breath is unrealistic, according to Severin Borenstein, director of the University of California Energy Institute. CCAs, Borenstein said, are “generally being oversold. What they cannot do is both go to a much richer renewables mix and save money. Renewable energy costs more. There is no magic bullet here.”

Solar energy, which ranges in price from 10 to 40 cents per kilowatt-hour, can cost up to ten times as much to produce as power from natural gas or coal, according to the National Resources Defense Council, an environmental group. (Wind power is more reasonable, selling at 4 to 6 cents per kilowatt-hour.)

San Francisco's customized version of Community Choice, with its seemingly incompatible goals of cost savings and more green power, can be understood as a product of the forces that invariably warp discussion of the city's energy policy. This arena of local politics has long been dominated by two factions: a cadre of left-wing activists inclined to lay all problems at the doorstep of PG&E, and a more moderate group that looks with suspicion on grand schemes for San Francisco to supplant the utility as the city's energy provider.

CCA's progress here — its ability to get traction where other ambitious overhauls of San Francisco's energy system have failed — is due in large part to its appeal as a compromise that most elected officials, activists, and bureaucrats can agree on, even if reluctantly. Who in this city can pragmatically seek to oppose a program with the words “Clean” and “Energy” side by side in its title?

CleanPowerSF has nevertheless been subject to a long-running bureaucratic turf war. The program is under the immediate control of the SFPUC, a city agency primarily responsible for providing water, whose governing commission is appointed by the mayor's office. But CCA also falls under the supervision of LAFCo, which is dominated by public-power advocates on the Board of Supervisors.

LAFCo is itself a bizarre appendage of the city's government. The commission first convened in 2000 to midwife a proposed municipal power agency. Voters rejected the idea, but the commission stuck around. For the past eight years, it has functioned as a sort of shadow public utilities commission, investigating various schemes for municipally controlled energy. Last year, LAFCo was granted $2.1 million to oversee and conduct public outreach for CleanPowerSF.

This arrangement has permitted the commission — which includes three seats for city supervisors on its five-member board — to lean on the generally more cautious SFPUC to push Community Choice forward. The program now known as CleanPowerSF began as two separate implementation plans, each hundreds of pages long: one produced by SFPUC staff, the other by Fenn's Local Power, which, according to city records, has billed the commission $43,681 for consulting services.

Eric Brooks, a local activist and supporter of CleanPowerSF who helped draft Proposition H, said resistance from the SFPUC delayed progress for years. “Quite frankly, we have had to drag them kicking and screaming into this project,” he said.

According to former SFPUC general manager Dick Sklar, who also served as a commissioner, city staffers' anxiety about CCA stemmed from holes in the program's business plan — such as whether the city could hold on to enough customers to make CCA financially viable, and how the program's large portfolio of renewable energy could be kept affordable for residents and businesses. “I just couldn't get answers to the basic questions,” Sklar said. “I think that a lot of folks become enamored of their game, rather than their objectives. It's become bureaucratic battles, mayor-Board battles, Paul Fenn advocacy battles.”

This conflict has not abated as CleanPowerSF has moved closer to becoming reality. Some basic aspects of the program are still the subject of dispute between LAFCo's consultants and SFPUC staff. One lingering area of disagreement is how aggressively the city should pursue construction of its own municipally owned energy sources within the boundaries of San Francisco.

In the name of reduced dependence on the outside world, the current CleanPowerSF plan calls for rapid construction of solar panels, wind turbines, and other green-energy equipment within the city. (Fenn's tidal power facility falls into this category.) Fenn still supports that goal, while the SFPUC's Hale said one way to lower the program's cost could be to relax the timeline for such projects, relying during the interim on wholesale purchases from the energy market.

The facilities would be built using $1.2 billion in revenue bonds that San Francisco residents authorized for the construction of renewable-energy sources through a 2001 ballot initiative. This is another potential impact of CleanPowerSF, and one that could be felt by all of the city's taxpayers — even those who choose to opt out of the program.

Revenue bonds of the kind that officials plan to use to build the city's green-energy facilities are loans guaranteed by the promise of future income. If CleanPowerSF fails to generate a large enough stream of revenue — for instance, if large business customers abandon the program en masse — creditors could in theory attack the city's general fund, which is filled by tax dollars.

Fenn insists that the city would be legally shielded from this ominous outcome. The reality, given the ongoing freeze in the credit markets, is that the financiers who underwrite San Francisco's CCA infrastructure will be calling the shots. Analysts in Oakland actually believe lenders would require that loans for CCA facilities be backed up by other sources of cities' revenue, given the untested nature of the programs, said Susan Kattchee, environmental services manager at the Oakland Public Works Agency. This was one factor behind the East Bay recommendation to drop Community Choice.

[page]

“If the city goes out and borrows money to build infrastructure, we've got to pay it back,” said Rob Black, vice president for public policy at the San Francisco Chamber of Commerce, which opposes CleanPowerSF. “We would be on the hook for that [$1.2 billion]. That's a lot of money.”

One of the few local examples of what such huge sums of cash would buy can be found downtown, on top of Moscone Center. The convention center's roof is home to the largest renewable-energy facility in the city, an array of more than 5,000 solar panels that, on sunny days, gleam like silver scales. If CleanPowerSF moves ahead, San Franciscans can expect to see many more of these panels: The plan calls for at least 31 megawatts of solar power to be generated within the city, an amount almost 46 times the maximum output of the Moscone array.

On a recent afternoon, Lori Mitchell, a renewable-energy specialist with SFPUC, gave a tour of the facility with two colleagues — energy-generation specialist James Andrews and communications official Jim Marks — and Fenn. Atop the roof beneath a hazy December sky, Mitchell explained that in-city solar power on the scale called for by CleanPowerSF, while a worthy ideal, will not be easily achieved.

Photovoltaic panels can't be relied on to steadily generate power, and thus require backup facilities to feed electricity to customers at night or on overcast days. Ironically, greater reliance on solar power could bring with it the need for more gas-fired “peaker” plants — so called because they gear up only during peak hours of energy use in the afternoon and evening — and the accompanying spew of ozone-depleting exhaust. “It's tough, because solar is an intermittent resource,” Mitchell said.

The day of the tour was a case in point. Mitchell said that the Moscone solar array had been producing only 150 kilowatts of its full 675-kilowatt capacity that morning because of hazy skies. Dreams of a sun-powered city notwithstanding, the convention center's massive rooftop installation currently accounts for only 3 percent of the electricity the building consumes annually.

Andrews, on the way downstairs, stopped to take a look at the facility's power meter. Mid-afternoon, the panels were still producing only 150 kilowatts. “That's not that much,” he observed, and smiled. “Don't write that down.”